2 Semiconductor Stocks to Dump Right Now

AMD stock has averaged a July loss of 6.1% over the past 10 years

Jun 29, 2017 at 11:54 AM
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Chip stocks have been soaring in 2017, as evidenced by the price action in the VanEck Vectors Semiconductors ETF (SMH). The fund is up 15.4% year-to-date, and hit a record high of $89.72 on June 9. Since then, SMH shares have pulled back to trade at $81.95, and if history is any guide, the sector could be facing steeper near-term losses. Specifically, unlike FAANG stocks and biotechs, SMH components Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology, Inc. (NASDAQ:MU) are two of the worst stocks to own in July.

AMD Stock Among Worst Stocks in July, 3Q

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, AMD stock has averaged a July loss of 6.1% in the last 10 years, and has been positive just 30% of the time. Widening the scope, Advanced Micro Devices shares have also historically underperformed in the third quarter, averaging a loss of 6.2% over the past decade, and turning in a positive performance in the July-September period just two times.

While this would certainly mark a change of pace to the security's longer-term trajectory -- AMD is up 150% year-over-year -- its price action has been more choppy of late. Since hitting a near-term high of $14.67 last week, a region that also served as a top in early April, the shares have shed 13%. This includes today's 3.5% drop that has AMD trading at $12.77.

Advanced Micro Devices stock's near-term troubles could also be exacerbated by options-related resistance. In the front-month series, peak open interest is currently found at the out-of-the-money July 14 and 15 calls, with nearly 108,000 contracts outstanding. This could create headwinds for AMD shares, as the hedges related to these bets unwind ahead of expiration.

Optimism is Priced Into MU Stock Ahead of Earnings

Micron shares have added more than 141% over the past 12 months, thanks to several strong bounces off their rising 50-day moving average. Since hitting a two-year high of $32.96 on Monday, MU stock has pulled back -- down 2.5% today to trade at $31.44.

Micron is staring down a historically tough time for the shares, too. Over the past decade, MU has been the worst performer on the S&P 500 Index (SPX) during the month of July, based on win rate. The stock has been positive just one time over this 10-year period, averaging a monthly loss of 3.3%.

Heading into tonight's earnings report, there's plenty of optimism priced into the semiconductor shares, too. All but one of the 16 analysts covering MU stock maintains a "buy" or better rating, while the average 12-month price target of $39.11 stands at a 24% premium to current trading levels. 

Plus, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MU options traders have bought to open 102,564 calls and 22,070 puts in the past two weeks. The resultant call/put volume ratio of 5.03 ranks in the 70th annual percentile, pointing toward an unusual bias toward bullish bets over bearish. While this could lead to a lackluster reaction to Micron earnings in tomorrow's trading, the options market is currently pricing in a 12.6% swing for MU shares, regardless of direction.


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